Government Employers See Significant Savings from Proven Cost-Control Moves

By Jeannie FanningJanuary 14, 2013

Cities and other government employers have one big goal in common with the private sector when it comes to employee benefits: containing costs. As insurance premiums and health care costs continue to go up, so does the pressure on cities to find new ways to continue offering valuable, competitive benefits without increasing spending. The good news is research has identified some of the most effective strategies government employers are implementing to control benefits costs — with significant success.

Wellness initiatives top the list of changes cities and other government employers are making to control their employee benefits costs, according to a study by the Government Finance Officers Association (GFOA) of its members. The research project, funded by a grant from Colonial Life & Accident Insurance Company, identified strategies government employers are using to manage the quality and cost of their employee benefits programs.

A strong majority — 79 percent — of GFOA members responding to the survey said they’re placing a greater emphasis on preventive care, and 77 percent said they’re promoting healthy behaviors as a cost-control technique. An equal number said they’ve established Section 125 “cafeteria” plans and are focusing on maximizing participation in pretaxed benefits. Only four percent said they planned to eliminate health benefits.

“Public employers clearly see benefits that help them maintain a healthy and productive workforce can also be effective strategies for controlling their benefits costs,” said GFOA Research and Consulting Director Anne Spray Kinney.

Popular Moves Not Always Effective

The study also showed the most common cost'savings techniques were not always the most effective. Health plan design changes, including carving out pharmacy benefits, expanding use of generic drugs, implementing health savings accounts and tightening provider networks, were the fourth most often-cited strategy at 71 percent. Yet just over half of those making health plan design changes strongly recommended that strategy to others.

In fact, some strategies getting the strongest endorsements apparently aren’t being widely implemented. Moving noncore benefits to employee-paid voluntary benefits was recommended by 87 percent of those who implemented this change, but only a third of employers have done so. Using a benefits carrier to handle benefits education and communication was recommended by 84 percent, but just over half have made this move.

“Public employers have proven strategies for controlling their benefits costs, but many of them aren’t taking advantage of the opportunities available to them,” said Colonial Life Public Sector Practice Leader Pat McCullough. “Strong benefits packages are typically an attraction for public employers. They’re most likely to be able to continue offering high-quality benefits if they find ways to make them more cost-effective.”

Proven Cost Savings

Study participants who implemented cost-control strategies reported significant savings in their employee health care benefits. More than half — 55 percent — of government employers reported saving at least 6 percent, and 40 percent of them saved more than ten percent. However, a quarter of respondents said they didn’t know how much they’ve saved. This lack of awareness points out a need for public employers to get help capturing and quantifying their potential savings says McCullough.

Although there is no one'size-fits-all solution for cities to control their employee benefits cost, this research makes it clear cities have access to proven resources and opportunities that work.

“Focusing on the right cost'saving measures could have a significant impact on the bottom line while minimizing the impact on employees,” says Conference of Mayors CEO and Executive Director Tom Cochran. “Thoughtful implementation of strategies appropriate for each employer can help them continue to offer a stable benefits package in a more financially sustainable way.”

A report based on the survey, “Containing Health Care Costs: Proven Strategies for Success in the Public Sector,” is available free of charge on Colonial Life’s website at www.coloniallife.com. Click on “Services We Offer” and “Public Sector” to find a link to the report. A white paper summarizing some of the key findings also is available on Colonial Life’s website in the Newsroom. Find it by clicking on “Latest News” and “White Papers.”

About Colonial Life

Colonial Life & Accident Insurance Company is a market leader in providing financial protection benefits through the workplace, including disability, life, accident, cancer, critical illness and supplemental health insurance. The company’s benefit services and education, innovative enrollment technology and personal service support more than 75,000 businesses and organizations, representing nearly three million working Americans and their families. For more information, visit coloniallife.com.

About GFOA

The Government Finance Officers Association is the major professional association serving the needs of 17,000 appointed and elected local and state level government officials and other finance practitioners. It provides top-quality publications, training programs, services, and products designed to enhance the skills and performance of those responsible for government finance policy and management. The association is headquartered in Chicago, with offices in Washington (DC). More information is available online at www.gfoa.org.

For additional information on how these strategies could help your city’s employee benefits, contact Kathryn Kretschmer-Weyland with the Conference of Mayors at 301-460-5251 or send e-mail to kweyland@usmayors.org, or contact Jeff Bean at 202-446- 8140 or e-mail jbean@usmayors.org.